The bill would have replaced a publicly traded corporation's current tax rate starting Jan. 1 with one based on a ratio between its top paid employee and the median workers' salary. Currently, corporations pay 8.84 percent of net income to the state, with banks paying 2 percent more.

The bill proposed reducing the corporate tax rate for any company in which the CEO's pay is less than 100 times that of the median worker. The lowest tax rate would have been 7 percent for any company whose chief executive is paid less than 25 times the median.

The tax rate for companies in which CEO pay is 100 times more than the median worker's pay would have gone up on a sliding scale, up to 13 percent for companies that pay their top executive more than 400 times the median.

DeSaulnier, D-Concord, said today's chief executives are receiving hundreds of times more than the average worker. For example, former Disney CEO Michael Eisner received $750,000 in 1984, which he said was 37.5 times more than a typical worker. Current CEO Robert Iger receives $34.3 million, which is 974 times the median pay.

"This is not to vilify those individuals. They work hard. They are creative. But from a historical standpoint, this is not a sustainable model for us to maintain," DeSaulnier said before the vote. "Income inequality is a huge threat to California's economic growth and stability."

The bill sparked a long debate on the Senate floor. Democrats called it a tax incentive that will motivate corporations to stop providing outrageous salaries to CEOs, while Republicans called it one of the worst ideas this year.

Sen. Steve Knight, R-Palmdale, called the bill un-American and said government should not tell a company what to do. "If we're going to tell them how much to pay people, we should tell them what to do," Knight said.

Sen. Hannah-Beth Jackson, D-Santa Barbara, said the majority of Californians are left "fighting for crumbs" while executives have no incentive to give back.

"This is an attempt to recognize that the recovery we're experiencing today is being felt by the top 1 percent," Jackson said.

The state Senate on Wednesday rejected a bill that sought to tie California's corporate tax rate to executive compensation in an effort to address the growing wealth gap.By a 19-17 vote, lawmakers failed to pass SB1372 by Democratic Sens. Mark DeSaulnier and Loni...